Pro Research: Wall Street dives into Zscaler’s prospects

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In the fast-growing cybersecurity space, Zscaler, Inc. (NASDAQ: ZS ) has been the subject of close scrutiny on Wall Street, with many different opinions on its future trajectory. This in-depth analysis integrates the views of multiple analysts to provide a comprehensive overview of Zscaler’s current position and potential in the markets in which it operates.

Company Profile

Zscaler is a leader in cloud-based security, delivering innovative solutions designed to securely connect users, devices and applications in distributed environments. Its suite of services, including Zscaler Internet Access (ZIA) and Zscaler Private Access (ZPA), are an integral part of the Secure Access Service Edge (SASE) platform, which is becoming increasingly popular as enterprises shift to compute, cloud and remote work. is becoming more and more important.

Performance and Market Strategy

Zscaler has shown significant growth, with analysts noting that billings increased 34% year over year and new federal annual contract value (ACV(HN:)) increased by more than 90%. The company’s aggressive expansion strategy and leadership in zero-trust security position it well within the $72 billion total addressable market (TAM). With the advent of generative AI, enhanced breach disclosure requirements, and favorable economic conditions, Zscaler’s growth trajectory is expected to continue toward the $5 billion annual recurring revenue (ARR) milestone.

Financial Wellness and Guidance

Zscaler’s financial results remain strong, with revenue guidance raised to a midpoint of approximately $2.095 billion, implying year-over-year growth of approximately 30%. Operating margins exceeded expectations, and full-year free cash flow (FCF) margins are expected to be around 20%. The company’s net retention rate declined slightly due to macro challenges, but is expected to stabilize. Analysts at Macquarie Equity Research expect Zscaler’s non-GAAP operating margins to be in the mid-40s over the long term, which bodes well for strong financials going forward.

Product segmentation and innovation

Zscaler’s product innovation remains a key strength, with nearly half of its new logos in the most recent quarter stemming from the combined ZIA, ZPA and ZDX transactions. The company’s focus on high-priority CIO initiatives and increasing market share through agnostic leadership has resulted in success. Emerging products such as ZDX, Zscaler for Workloads and data protection services are outperforming competitors and are expected to grow further in fiscal 2024. The new Risk360 solution fits the SEC’s upcoming data breach reporting requirements, which could spur huge demand.

competitive landscape

Zscaler continues to be well positioned relative to its peers, trading at an attractive multiple and benefiting from a stable macro environment that favors its transformational sales approach. Despite intense competition, Zscaler’s innovative leadership and strategic market positioning are expected to sustain growth, with the company’s fiscal 2020 electric vehicle sales outperforming peers by 10.8 times, compared with the industry average of 13.1 times electric vehicle sales. The cybersecurity industry is experiencing dynamic market conditions, and the average enterprise value/revenue multiple across JMP Securities’ coverage universe is 13.7x CY2023E revenue, indicating that market valuations are strong for cybersecurity companies.

Analysis goals

Analysts have set various price targets for Zscaler, reflecting their confidence in the company’s prospects. Here are some recent goals:

– Barclays Capital sets price target at $210.00 (Nov 28, 2023).

– Wolfe Research raises price target to $205.00 (Nov 28, 2023).

– J.P. Morgan Securities LLC set a price target of $200.00 (Nov 28, 2023).

– JMP Securities sets price target at $225.00 (December 15, 2023).

– Evercore ISI revised price target to $215.00 (November 28, 2023).

– BTIG, LLC sets price target at $229.00 (Nov 28, 2023).

– Piper Sandler sets price target at $236.00 (December 8, 2023).

– Macquarie Equity Research upgraded Zscaler to “Outperform” from “Neutral” and raised the price target to $231.00 (December 12, 2023).

Piper Sandler now has a price target of $255.00, citing Zscaler’s strong positioning for 2024 and an overall positive outlook for security spending (January 2024), which further adds to the bullish sentiment.

bear box

Is Zscaler’s growth slowing down?

Some analysts worry that Zscaler’s unchanged fiscal 2024 dividend guidance could signal steady growth or an overly conservative forecast. High expectations that are not exceeded can lead to short-term stock volatility. Increased capital expenditures (capex) are expected to impact free cash flow margins in the near term, and net retention fell slightly due to macroeconomic factors, which may indicate challenges existing customers are facing in scaling up spend.

Will macro challenges hinder Zscaler’s performance?

Macroeconomic challenges, such as increased transaction monitoring and a potential economic recession, could impact Zscaler’s credit quality and billings growth. The company’s directional conservatism may impact its ability to meet investor expectations in the near term due to changes within the sales organization and macro challenges.

cow case

Can Zscaler maintain its strong position in the market?

Analysts are optimistic about Zscaler’s ability to maintain a strong market position, highlighting its leadership in the SASE market and strategic appointments aimed at accelerating growth. The company’s high levels of growth, profitability and predictability are seen as positive indicators, even in a challenging macro environment. The company’s experienced management team and solid cybersecurity foundation are expected to support continued revenue growth and leading position in the SSE market.

Will Zscaler’s innovation lead to sustainable growth?

Zscaler’s innovations in product offerings, focused on its zero-trust security platform and federation business, are expected to drive continued growth. The company’s strong federal quarter results and strong trading momentum, coupled with conservative guidance, suggest conservative estimates could lead to better-than-expected results going forward. Significant growth in the federal business segment and record levels of pipeline construction indicate future growth potential.

SWOT analysis

strength:

– A leading position in the SASE market.

– Strong billings and revenue growth.

– Provide diverse and creative products.

– Experienced management team.

weakness:

– Unchanged billings guidance points to growth potential.

– Net retention rate dropped slightly.

– Increasing invested capital affects short-term free cash flow margins.

Chance:

– Expanding TAM for cybersecurity solutions.

– Growing demand for zero-trust security platforms.

– Potential for increased profits and market share.

– A positive outlook arising from the impact of artificial intelligence and favorable economic trends.

threaten:

——Enhancing competition in the field of network security.

– Macroeconomic challenges affecting customer spending.

– Implementation risks as the company scales.

The time range used in this analysis is September to December 2023.

More information about InvestingPro

As investors consider the future of Zscaler, Inc. (NASDAQ: ZS ) real-time data and expert insights provide a clearer picture of the company’s valuation and performance.according to investment expertZscaler’s market capitalization is approximately $31.19 billion, reflecting its important position in the cybersecurity field. Despite trading at a challenging P/E ratio of -181.65, the company is showing promising signs of growth, with revenue growing 44.58% in the trailing 12 months to Q1 2024. This, coupled with a gross profit margin of 77.46%, highlights the company’s efficiency and profitability potential.

between Investment Professional TipsConsidering Zscaler’s current situation, two tips are particularly relevant: the expectation that net profit will rise this year, and the fact that 33 analysts have upgraded earnings for the period ahead. These insights point to a positive change in the company’s financial trajectory, which could appeal to investors looking for growth opportunities in the technology space. Additionally, Zscaler’s strong return of 35.53% over the past three months highlights its recent market performance and may signal a continued upward trend.

For those looking for deeper analysis and more relevant insights, InvestingPro offers a host of additional tips. Currently, Zscaler also lists 16 tips, providing subscribers with a comprehensive overview. To get these insights and enhance your investing strategy, consider subscribing to InvestingPro, which is currently running a special New Year’s sale with up to 50% off.Also, use the coupon code Study 24 Subscribe to get an extra 15% off With InvestingPro+ 2 years, there is no better time for investors to gain an edge in the market.